Steven D. Molasky v. Augustine Bustos , 492 F. App'x 801 ( 2012 )

FILED
NOT FOR PUBLICATION SEP 13 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In the Matter of: STEVEN D. MOLASKY, No. 11-15060
Debtor, D.C. No. 2:10-cv-00781-JCM-
PAL
STEVEN D. MOLASKY,
MEMORANDUM *
Appellant,
v.
AUGUSTINE C. BUSTOS,
Appellee.
Appeal from the United States District Court
for the District of Nevada
James C. Mahan, District Judge, Presiding
Argued April 20, 2012
Re-Submitted September 11, 2012
San Francisco, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: NOONAN and MURGUIA, Circuit Judges, and TIMLIN, Senior District
Judge.**
Steven D. Molasky (“Molasky”) filed a voluntary bankruptcy petition in
which One Cap Holding Corporation (“OneCap”) commenced an adversary
proceeding under 11 U.S.C. § 523. Augustine C. Bustos (“Bustos”) intervened in
the § 523 complaint. After OneCap was dismissed for failure to prosecute, the
bankruptcy court dismissed Bustos. The district court reversed the bankruptcy
court’s dismissal. We vacate the district court’s order and remand to the
bankruptcy court for proceedings consistent with the discussion below.
An intervenor can proceed after dismissal of the original party if 1) there is
an independent basis for jurisdiction, and 2) unnecessary delay would otherwise
result. See Benavidez v. Eu, 34 F.3d 825, 830 (9th Cir. 1994). The bankruptcy court
summarily found no independent basis for jurisdiction for Bustos because Bustos
failed to file a timely § 523 complaint. The bankruptcy court erred as a matter of
law, however, in failing to recognize that the § 523 deadline is discretionary and
may be extended with cause. See F ED. R. B ANKR. P. 4004(b). The deadline can be
extended even after the deadline has already run. See F ED. R. B ANKR. P.
**
The Honorable Robert J. Timlin, Senior District Judge for the U.S.
District Court for Central California, sitting by designation.
2
4004(b)(2). Failure to meet the § 523 deadline is not a mandatory jurisdictional
bar.
The bankruptcy court could have considered various factors in determining
whether “cause” existed for extending the § 523 deadline: “(1) whether granting
the delay will prejudice the debtor, (2) the length of the delay and its impact on
efficient court administration, (3) whether the delay was beyond the reasonable
control of the person whose duty it was to perform, (4) whether the creditor acted
in good faith, and (5) whether clients should be penalized for their counsel's
mistake or neglect.” In re Magouirk, 693 F.2d 948, 951 (9th Cir. 1982) (citations
omitted). Molasky does not appear prejudiced by allowing jurisdiction, as he was
already on notice as to OneCap's complaint. If the bankruptcy court limits Bustos
to litigating OneCap's original complaint, Molasky is not exposed to any new
complaints. The length of the delay is related specifically to the time it took for
OneCap to fail to prosecute, so the delay should not be an undue burden to the
court's administrative process. OneCap's failure to prosecute appears to be beyond
the reasonable control of Bustos. These equitable arguments suggest that Bustos
should be allowed to continue the § 523 action, and “bankruptcy courts . . . are
courts of equity and appl[y] the principles and rules of equity jurisprudence.”
3
Young v. U.S., 535 U.S. 43, 50 (2002) (alteration in original) (quoting Pepper v.
Litton, 308 U.S. 295, 304 (1939)) (internal quotation marks omitted).
For the reasons stated above, we VACATE the district court’s order and
REMAND to the bankruptcy court for a determination of jurisdiction over Bustos
under F ED. R. B ANKR. P. 4004(b).
4
FILED
In re Molasky, 11-15060 SEP 13 2012
MOLLY C. DWYER, CLERK
MURGUIA, Circuit Judge, dissenting. U .S. C O U R T OF APPE ALS
I respectfully dissent. Bustos failed to file an adversary action before the
applicable statute of limitations ran. Rather than seek an extension of the statute of
limitations, Bustos reached an agreement with the debtor, Molasky, to intervene in
OneCap’s case. The scope of Bustos’s intervention was expressly limited by the
bankruptcy court, so that intervention would not serve as a means of defeating the
time bar. Following the dismissal of OneCap, the bankruptcy court properly
determined that Bustos could not proceed since his claims were time barred. A
court can only retain jurisdiction over an intervenor’s claims after dismissal of the
original plaintiff if “the court can avoid the senseless delay and expense of a new
suit, which at long last will merely bring the parties to the point where they now
are.” Benavidez v. Eu, 34 F.3d 925, 830 (9th Cir. 1994) (internal quotations
omitted). Bustos does not pass the Benavidez test because dismissing his time-
barred claims will not simply postpone the inevitable filing of a new suit.
Bustos does not claim the bankruptcy court abused its discretion in failing
to extend the statute of limitations, nor does he seek the “equitable” remedy the
majority provides. Rather, Bustos only claims that he satisfies the Benavidez test.
As noted above, he does not. Bustos elected to intervene on limited grounds.
Bustos did not seek an extension of the statue of limitations to assert his own
claims, nor did he seek to be substituted for OneCap before its dismissal. It is not
the province of this Court, at this stage, to introduce a remedy that in hindsight
appears better for the appellant as a matter of equity. See, e.g., In Re Bernal, 207
F.3d 595 (9th Cir. 2000) (holding that where noteholder improperly sought
intervention after default where the proper remedy was substitution pursuant to
Fed. R. Bankr. P. 7025, court had no remedy for the noteholder); see also, F.D.I.C.
v. Deglau, 207 F.3d 153, 159 n.2 (3d Cir. 2000). I would affirm the bankruptcy
court.